In today’s cross-border M&A landscape, shareholder rights plans – commonly known as “poison pills” – continue to be a common defensive mechanism for US targets to prevent or delay hostile or unsolicited takeovers; however, these plans have largely become redundant for Canadian targets following the sweeping changes to the Canadian takeover bid regime in 2016. This divergence in practice can lead to uncertainty when dealing with cross-border transactions, particularly with dual-listed issuers. While many of the core mechanisms of rights plans remain consistent on both sides of the border – threatening to dilute hostile acquirors who cross a set threshold ownership (20% in Canada, though sometimes as low as 9.9% or even 4.9% in the US) – the legal foundations, regulatory approaches and strategic implications diverge in critical ways between Canada and the US.

For dealmakers, these differences aren’t just technical – they actually shape bid strategies, timelines and outcomes. For instance, adoption of a rights plan that would be routine under Delaware law may be swiftly cease-traded by Canadian regulators. Conversely, Canadian boards constrained by real-time oversight may seem under-defended to US investors accustomed to more aggressive tactics. Understanding these contrasts is essential to navigating modern cross-border transactions with US and Canadian companies.

Why rights plans matter in cross-border M&A

Rights plans are most relevant in moments of conflict: a hostile bid, creeping control or an activist campaign. They give a board time to evaluate, or in some cases prevent or thwart, an unsolicited or hostile proposal, seek alternatives or communicate with shareholders. But how much time a board can buy – and under what conditions – varies greatly by jurisdiction.

In Canada, prior to the “new” 2016 rules, rights plans were a staple in hostile bid defense and were overseen in real time by securities regulators such as the Ontario Securities Commission. These regulators would intervene and typically cease-trade a plan within 30 to 60 days with the premise being that a plan should give a board time to react to bids but not prevent them. With the post-2016 regime, in which a hostile bid must be open for at least 105 days, regulators have been clear that, in all but the rarest of situations, there is no purpose to a rights plan, and consequently, very few issuers have adopted a plan in the face of a bid since 2016 in Canada. This treatment of rights plans is consistent with Canadian regulators approach to defensive bid tactics which generally prohibits boards from taking action aimed at preventing bids as shareholders, not the board of directors, are to be given the ultimate say in Canada. 

While Canadian regulators are clear that shareholders get the ultimate say on bids, under Canadian corporate law, boards need to consider not only maximizing value. Boards must also balance other stakeholder interests such as the interests of employees, creditors, the environment, and long-term corporate health when responding to bids.

By contrast, in the US – particularly in Delaware – directors can, and typically do, adopt rights plans without shareholder approval, and the plans can remain in place for up to 10 years unless successfully challenged in court. Based on current practice, US rights plans are frequently designed to be in place for 12 to 24 months, which gives ample time to defend or prevent a hostile or unsolicited bid or to negotiate with an activist shareholder. Judicial review is retrospective and generally deferential, so long as the board’s actions are in good faith and aimed at maximizing shareholder value. The emphasis in the US (and particularly in Delaware) is squarely on price, preservation of long-term corporate plans and shareholder value maximization, not broader stakeholder interests.

This difference creates a fundamental strategic divide. In the US, rights plans can provide meaningful leverage; in Canada, rights plans are generally not useful in the face of a hostile bid.

Governance philosophy and regulatory culture

The differences in poison pill treatment reflects broader governance principles in Canada and the US.

Under Delaware law, directors owe duties primarily to the issuer and to the shareholders. The landmark decisions in Unocal¹ and Unitrin² support the board’s use of pills – but demand that defensive measures be designed to serve the ultimate goal of maximizing shareholder value.

Canadian directors, by contrast, owe duties to the corporation itself, not just shareholders – a broader standard codified in the Canada Business Corporations Act³ and affirmed in BCE Inc. v. 1976 Debentureholders⁴. Boards must weigh employee, environmental and long-term health considerations – and can even reject a higher bid if another offer better aligns with the corporation’s interests. However, regulators demand transparency and fairness when pills are deployed, regardless of motive.

This divergence has real consequences in a takeover battle. A Canadian board has more legal room to reject an offer on stakeholder grounds, but less (almost none, in fact) regulatory latitude to delay or obstruct a bid using a rights plan. In the US, the Delaware Supreme Court’s decision in Revlon⁵ confirmed that once a sale of control becomes inevitable, the board’s duty shifts to maximizing short-term shareholder value. So unlike in Canada, a US board has broad discretion to adopt a poison pill, but less flexibility to justify any outcome other than highest-value maximization if it has become inevitable that the company will be sold.

Tactical pills and their decline in Canada

Nowhere is the divergence more visible than in the use of “tactical” rights plans – those adopted in direct response to a bid. In the US, tactical pills are a routine part of the M&A toolkit. If an issuer has blank-check preferred stock, a rights plan can be adopted on short notice and used to fend off hostile approaches indefinitely unless successfully challenged in court or withdrawn in connection with a negotiated transaction. By contrast, Canadian securities regulators have largely curtailed the use of tactical pills following the 2016 overhaul of the takeover bid regime. Since the introduction of a 105-day minimum bid period and stricter oversight, very few tactical pills have been put in place and the regulators have been clear that rights plans generally do not have a place as a defensive tactic to a hostile bid. Two of such examples include:

• CanniMed/Aurora (2017)⁶: This was the first time the Canadian regulators addressed rights plans following the 2016 rules. The OSC cease-traded a tactical pill and made it clear that only in the rarest of circumstances will a rights plan be appropriate in the face of a hostile bid. In the CanniMed case, despite being cease-traded, the plan was effective in that for a few days it prevented Aurora from buying shares that it otherwise could have used at an already called CanniMed meeting to vote on a competing deal .
• Brookfield/Inter Pipeline (2021)⁷: The ASC permitted a narrowly tailored plan targeting derivative-based accumulations that it viewed as inappropriate.
• Canadian pills, if adopted at all, are typically adopted when no bid is in place and approved by shareholders to ensure regulatory and proxy advisor support. These plans, while not too common, can be useful to prevent against creeping bids or the use of hard lock-ups.

Strategic consequences for cross-border buyers

The legal and regulatory gap between Canadian and US rights plans creates not only tactical differences, but also strategic implications that can directly influence deal structure, bid timing and negotiation dynamics – especially in hostile or unsolicited situations.

US acquirors

A US acquiror looking to acquire a Canadian issuer can be less concerned that a rights plan will be used to prevent its offer. As noted above, in all but the rarest of circumstances, a Canadian issuer will not be able to effectively use a rights plan, even if one was already in place, to thwart an offer. A rights plan used to entrench management or delay a credible offer without justification will almost certainly be cease-traded quickly.

Under NP 62-202⁸, regulators will expect the board to avoid frustrating shareholder choice. A board is expected to act in the best interests of the corporation, which could include engaging with the bidder, evaluating strategic alternatives or determining that the status quo is the appropriate alternative. Whatever route a board goes, it is often best to communicate openly and transparently with shareholders.

Canadian fiduciary standards require the board to act in the interests of all stakeholders and not just maximizing value for shareholders. A board can, therefore, rightly reject an offer on stakeholder grounds; however, the rationale must be clearly articulated and tied to long-term corporate interests as any such decision will be heavily scrutinized.

US acquirors may therefore make a bid with little fear of it being stopped by a rights plan; however, thought should be given to the broader stakeholder ecosystem and not just what will be best for target shareholders. Bid messaging should emphasize not only price and premium to the market, but other matters such as job retention and other governance-related matters.

Canadian acquirors

By contrast, a Canadian acquiror looking to acquire a US target may face an entrenched board empowered to reject an offer by a durable rights plan. If a Delaware target has blank-check preferred stock, its board can adopt a rights plan without shareholder approval and this plan can potentially remain in place indefinitely. The only path to removal is litigation, a proxy contest or to arrive at a mutually agreed upon transaction.

When challenged, Delaware courts apply the Unocal and Unitrin standards but tend to defer to board judgment unless the pill appears pretextual or grossly disproportionate. A Canadian offeror must prepare for an extended campaign – including legal costs, public messaging and potentially a contested shareholder vote. Appeals to stakeholder concerns will likely fall flat as Delaware courts expect a laser focus on shareholder value and case law has upheld a “just say no defense” when a board properly relies on its long-term plan to consistently reject an offer.

Dual-listed issuers

For dual-listed issuers, the challenge can be more complex: their rights plans must walk a regulatory tightrope – robust and aggressive enough to satisfy US investors and litigation risk, yet compliant and passive enough for proactive Canadian oversight. These issuers must also navigate conflicting investor expectations. Disclosure, rationale and communication must be harmonized across borders to reflect divergent expectations and avoid undermining the company’s credibility in either market.

Practical guidance for cross-border deal teams

Success in contested M&A depends not just on structure, but on early and thoughtful management of rights plans, especially in cross-border situations where regulatory expectations differ significantly. Cross-border deal teams should:

• Identify whether a rights plan is in place and review its terms, expiration and shareholder approval history.
• Align messaging with jurisdictional expectations – focus on stakeholder and long-term impact in Canada and shareholder value in the US.
• Engage early with regulators and proxy advisors, where applicable.
• Anticipate activism from US hedge funds, even in Canadian deals.
• Prepare dual playbooks for regulator engagement, public messaging and board strategy on both sides of the border.

Rights plans are not a one-size-fits-all defense. Their effectiveness and permissibility depend on careful tailoring to the regulatory environment and on proactive engagement with stakeholders.

Conclusion

In the US, poison pills remain flexible and enduring tools of defense that are commonly seen in response to a hostile or unsolicited bid. In Canada, while there is some limited use of a shareholder approved plan when no bid is present, it is very rare to see a plan put in place in response to a hostile bid. Further, if a rights plan is adopted in response to a bid in Canada, it will almost certainly be cease-traded well before the end of the bid period resulting in no benefit to the issuer. For cross-border buyers and boards, understanding these differences is essential. Winning across borders takes more than legal structure – it demands strategy, nuance and deep local insight.

For further information, please contact the authors, Jason Saltzman, Ilan Katz and Ivana Cescutti.

1. Unocal Corp. v. Mesa Petroleum Co., 493 A.2d 946 (Del. 1985).↩
2. Unitrin, Inc. v. American General Corp., 651 A.2d 1361 (Del. 1995).↩
3. Canada Business Corporations Act, RSC 1985, c. C-44, s. 122(1.1).↩
4. BCE Inc. v. 1976 Debentureholders, 2008 SCC 69, [2008] 3 S.C.R. 560.↩
5. Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc., 506 A.2d 173 (Del. 1986).↩
6. Aurora Cannabis Inc. (Re), 2018 ONSEC 10.↩
7. Brookfield Infrastructure Partners L.P. (Re), 2021 ABASC 100.↩
8. National Policy 62-202 – Take-Over Bids – Defensive Tactics, Canadian Securities Administrators.↩